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Woken up in Seattle

Michael Byers on the WTO

The image of tens of thousands of protesters besieging the World Trade Organisation summit in early December was startling, in part because of the incongruity of the location: Seattle, the most relaxed of American cities. The true significance of the event lies elsewhere, however, in the changing political structures of international affairs. The ‘Battle of Seattle’ was the latest manifestation of the enormous shift in international politics caused by the end of the Cold War, the predominance of the United States, the globalisation of technology and business, and the rise of an ‘international civil society’.

The WTO came into being in 1995 as the result of a 26,000-page treaty concluded in Marrakesh. It has a secretariat of 500 and binding procedures for settling trade disputes – designed to ensure compliance with detailed obligations in areas as diverse as intellectual property, government procurement, services, subsidies, import licensing, textiles and agriculture.

Unlike most other international organisations, the WTO is highly effective. Twenty-six trade disputes have already been resolved through formal adjudication before panels of arbitrators; even more have been settled before or during this judicial process. More than a hundred disputes are currently being dealt with. From one perspective, the WTO is a model for the development of the entire international system.

From another perspective, however, it is a creature of US foreign policy, conceived and delivered in the aftermath of the Cold War. In 1944, at Bretton Woods, the US and its allies had attempted to create something similar, the International Trade Organisation, as the third pillar of an economic system that already included the International Monetary Fund and the World Bank. The ITO, like so many other international institutions this century, died a premature death in the US Congress, where domestic politicians – as always – remained less convinced of the benefits of internationalism than the bureaucrats and statesmen directly responsible for foreign policy.

Despite the failure of the ITO, the trade obligations envisaged at Bretton Woods survived in the form of the General Agreement on Tariffs and Trade. Throughout the Cold War, the GATT provided a degree of consistency in international economic relations – even though it had no power to enforce the settlement of disputes, and members could ignore their obligations whenever important domestic interests were at stake.

When the ‘Uruguay Round’ of trade negotiations began in 1986, the negotiators were seeking to make only minor amendments or additions to the GATT. The rivalry between the US and the Soviet Union meant that the policy options of the superpowers, their allies and clients, and even the ‘non-aligned states’, were limited. The collapse of the socialist bloc three years later provided negotiators with an unanticipated opportunity of perhaps even greater scope than that enjoyed at Bretton Woods. All of a sudden, neo-capitalism was the predominant paradigm, with many formerly socialist countries adopting policies that made the welfare democracies of the West seem almost socialist themselves.

The underlying assumption of the GATT, the WTO and the vast majority of trade negotiators is simple: free trade is an engine for growth that enables each country to make the most efficient use of its own ‘comparative advantage’, by producing what it’s best at producing, and exporting that abroad. The writings of Adam Smith and David Ricardo are so influential in the trade world that most experts refuse even to discuss the merits of this basic laissez-faire assumption.

The US, born out of a tax revolt in the same year that The Wealth of Nations was published, has long accepted it, and saw an opportunity after 1989 to complete its victory in the Cold War by entrenching free-market principles worldwide. Together with its allies in the developed world, it seized on the very mechanism that Congress had rejected half a century earlier: an international organisation with binding powers to settle disputes. The US saw an opportunity also to create stronger trade obligations in those areas of particular interest to its own corporations, in services (banking, law, management consultancy etc) and intellectual property (copyrights and patents). The result was a concerted negotiating effort – this time with the advance, ‘fast-track’ approval of Congress – to create a trade regime that would take full advantage of the US’s position as the sole superpower, and entrench its gains in a durable, enforceable treaty.

Much of the rest of the world was caught off guard. The sheer complexity of the Uruguay Round, with groups working in parallel on more than thirty specialised agreements, meant that most countries were at an immediate disadvantage relative to the US, Japan and the European Union, with their armies of negotiators. In the area of intellectual property, for example, developing countries are only now beginning to understand the full implications of what they signed up to in Marrakesh. Current disputes over patents on indigenous crops in India and rights to produce and distribute Aids drugs in South Africa are only the first manifestations of the enormous impact the intellectual property regime of the WTO will have on the developing world.

In exchange for their co-operation on services and intellectual property, developing countries were promised further negotiations on agriculture and textiles – negotiations which, they hoped, would give them non-discriminatory access to European and North American markets. But the US and the EU remain irreconcilably divided on the issue of agricultural subsidies, and unwilling to pay the domestic political price of moving forward on textiles. This has left the developing countries with nothing in return for their concessions, and with stagnating agricultural and textile sectors which – in a world of true free markets – might provide them with their best opportunity for economic growth.

Other countries – Japan, the members of the EU and Canada – saw a distinct advantage in locking the US into a system of binding rules and dispute settlement procedures. Many of the most significant trade disputes – involving automobiles, bananas, hormone-treated beef, genetically modified food and extraterritorial legislation – have arisen among these countries, with the US being the most willing to take punitive action. This advantage was undermined, however, by a national security exception being written into the WTO agreement. In 1996, the US threatened to invoke this in defence of the Helms-Burton Act, which penalises foreign companies who trade with Cuba, so keeping the dispute out of the WTO, and forcing the EU and Canada into a fragile negotiated settlement.

The WTO’s enforcement system is also highly favourable to the US. Once the judicial process has run its course, the resulting decision is enforced by ‘countermeasures’ – the suspension of tariff reductions that the winning country would otherwise have been legally required to provide to the loser under WTO rules. These punitive measures can be taken against any of the losing country’s exports, even if they have no connection with the dispute. In this way the US was able to raise its tariffs against Scottish cashmere early last year, in retaliation for the EU’s restrictions on banana imports. The WTO’s reliance on such retaliation means that non-compliance will only be punished effectively in cases where the winning party is at least as powerful as the loser, and no other member of the WTO, not even the EU, is as powerful as the US.

Despite its very apparent disadvantages, the costs of leaving or staying out of the WTO have become substantial. The 135 members increasingly benefit from equal access to each others’ markets (‘most-favoured nation status’), and their corporations operating abroad have the right to be treated in the same way as those of the ‘host’ state (‘national treatment’). Compliance with the decisions of WTO panels is not usually a problem. Weak states have no option but to comply, while the US and other powerful members recognise that the WTO operates to their overall benefit, and are willing to comply unless there are substantial domestic interests at stake. Thus no country can really afford to remain outside the WTO. Even China, the world’s largest potential market and an ostensibly socialist state, is eager to join, after having come to an agreement with – inevitably – the US.

The business of the Seattle summit should have been to address concerns not dealt with in the Uruguay Round: agricultural subsidies, the selling of products overseas at below cost (‘dumping’), unfair business practices (including the possible monopolies of companies such as Boeing and Microsoft) and foreign direct investment.

It was the last of these that was largely responsible for the chaos in Seattle. In 1996, the Organisation for Economic Co-operation and Development – a club of the world’s 29 richest countries – decided to negotiate a Multilateral Agreement on Investment. In a brilliant strategic move, it was decided that this would be negotiated among the members of the OECD alone. Not surprisingly, they all agree on the importance of protecting the investments of transnational corporations abroad, most of which are incorporated and owned in the developed world, and constitute a powerful lobby in Western capitals. Developing countries were later to be ‘invited’ to sign up to the corporation-friendly MAI. One can well imagine that a developing country would initially reject such an invitation, at least until ratification became a condition for receiving financial assistance during the next economic crisis.

The MAI negotiations quickly attracted the attention of non-governmental organisations, in part because they were so clearly directed at furthering corporate interests, and in part because the OECD decided to be very open about the negotiations – going so far as to post various drafts on the Internet. These were serious blunders. Although some NGOs – the Red Cross, Amnesty International, Oxfam and Greenpeace – have long been influential international actors, the number and power of NGOs has increased exponentially over the last decade. This growth is due to increased concern about globalisation, as well as to the speed and low cost of the Internet, which has enabled activists to co-operate more effectively and so enabled more people to become activists. Before the MAI negotiations could be concluded, a powerful coalition of hundreds of NGOs had formed in opposition. The resulting public scrutiny and pressure on governments quickly caused the negotiators to reconsider. The MAI was dead, and NGOs – now referred to as ‘international civil society’ – had become a powerful new force in international politics.

Governments and corporate lobbyists are extremely persistent, however, and immediately sought to move the investment issue into the next WTO negotiating round. They thought that the overwhelming influence of the developed nations, and the relatively opaque and specialised character of the WTO, might enable corporation-friendly rules on investment protection to be included. But the NGOs, emboldened by their successes and determined not to be outmanoeuvred, now shifted their attention to the WTO.

From that point onwards, the Seattle summit was doomed. Activists around the world began learning about the intricacies of international trade, and talking, not just to each other, but also to labour and environmental activists in the US, and to the governments of developing countries. They pointed to the WTO’s close co-operation with transnational corporations, to the fact that Bill Gates was co-chair of the summit, to the problems with the organisation’s underlying assumption of the benefits of free trade, and to the lack of transparency in its procedures.

The US-based activists, for their part, leaned heavily on the Clinton Administration, demanding that labour standards and environmental issues be made part of the WTO’s new agenda. Hundreds of very different domestic groups, including the United Steel Workers of America, the Sierra Club and the Humane Society, became bedfellows in a co-operative effort that threatens to have serious consequences for the Democratic Party – and Al Gore – in the November 2000 elections. Bill Clinton, ever responsive to the opinion polls, went to Seattle with the labour and environment issues firmly on his agenda – and with little willingness to compromise on issues of importance to other WTO members, even though, as the quintessential lame duck President, he has no credibility at home and very little abroad. Despite repeated telephone calls to Blair, Chirac, Jean Chrétien and others, the only other leader in Seattle was the one Clinton least wanted there: Fidel Castro.

The increasingly complex interaction of geopolitics, domestic politics, economics, corporate power, civil society, international organisations and international law makes it extremely difficult to develop policies appropriate to a globalised world. Governments seem unwilling, or perhaps unable, to update their assumptions or to make decisions that would annoy entrenched interests at home. The Seattle summit is only one instance of how ill-prepared governments are to manage the challenges; other examples include climate change, over-fishing, the Asian financial crisis, nuclear proliferation, ethnic conflict and refugees. One can’t help wondering whether states are any longer all that important, or whether sovereignty – the capacity to engage in international relations and exercise exclusive control over a territory and its people – has slipped away, leaving the state as just one in a cast of actors. And if that has happened, or is happening, what does ‘democracy’ now mean? The protesters in Seattle were right to point to the relative lack of transparency and accountability on the part of the WTO, but they failed to notice that similar problems exist within other international organisations, most national governments, most corporations and even many NGOs.

Transnational corporations are also having difficulty adapting to rapid global change, and especially to the rise of the NGOs. Shell was caught out by Greenpeace on Brent Spar and in Nigeria. Monsanto has been forced to halt development of the ‘terminator’ gene, and to retreat on the issue of GM food in Europe. Bill Gates was conspicuously absent from most of the Seattle event that he’d helped to organise. Corporations have to learn quickly in order to survive, and they’re now doing so, investing in analysts, consultants, human rights specialists, their own universities, all in a desperate effort to understand the new dynamic of international affairs, and to shape and exploit it to their advantage. They will ensure that the WTO survives, that foreign investments are protected, existing trade rules enforced, and new rules created. The only thing that remains uncertain, even after Seattle, is whether – and to what degree – other interests will be taken into account.

The NGOs have now to show the responsibility to go with their new-found power. They need to pick the right issues, to represent the facts accurately, to be responsive to the international civil society that most purport to serve. Not all NGOs support human rights and environmental protection. The International Chamber of Commerce is a NGO; so are the United Steelworkers of America. So, too, are drug cartels, terrorist groups and organised crime rings. Nor are even the more benevolent of the NGOS necessarily democratic. Like lobbyists in domestic politics, they serve particular interests – including their own financial interests – often without regard to the consequences of their actions for other issues and other groups.

The most encouraging development has been the rise in the power not of the NGOs, but of individual activists. Most of the Seattle protesters are not strongly wedded to any particular NGO. They are merely educated, informed people concerned about some of the effects of economic globalisation. Many, it turns out, are retired professionals with time on their hands and access to the Internet. This new breed of activist poses an enormous challenge to governments and corporations, for its members cannot be dismissed as lacking expertise and knowledge or as having any particular agenda. And their numbers are growing. The information age offers unprecedented opportunities for democracy and individual autonomy, while at the same time posing serious threats to those same values. Seattle was a wake-up call, not just for governments, corporations and the WTO, but for individuals everywhere, to exercise constructively this fragile yet powerful new form of democracy that has so remarkably appeared.

Letters

Michael Byers’s article on the lessons of Seattle (LRB, 6 January) managed to add to the already voluminous confusion on this subject, as much by what it did not say as what it did. It began with an accurate account of the way the WTO has failed sufficiently to advance the aspirations of the world’s poorest countries. It concluded with an approving nod to ‘the rise in power … of individual activists … educated, informed people concerned about some of the effects of economic globalisation’, many of them ‘retired professionals with time on their hands and access to the Internet’. The unwary reader might be misled by this into thinking that the triumph of the activists in Seattle will have helped right the wrongs of the developing countries with which his article began.

If only that were true. Poor countries have suffered under the WTO process principally because the results have not been as liberal as the rhetoric (on textiles and agriculture, for example). Most of the activists, though, are fighting against even the little liberalisation that has occurred. Calls for tighter labour and environmental standards have been spearheaded by such organisations as the AFL-CIO, whose concern for the welfare of foreign workers is of suspiciously recent date. They have realised that blatant protectionism is more palatable to feelgood moralists if dressed up as compassion.

Byers may feel that honing the IT skills of rich-country activists is an achievement that compensates for the damage done to millions of the world’s poor by the Seattle debacle. But he says nothing about this damage, except for a sneer about the ‘experts’ who ‘refuse even to discuss the merits’ of the writings of Adam Smith and David Ricardo by whom they are inspired. He may be interested to know that there has been some research on these issues since Ricardo’s time (indeed they are some of the most discussed questions in modern economics). It can no longer seriously be disputed that there is a strong link between openness to trade and economic growth in the medium to long term. How much this growth helps the poor depends on other things, of course. In East Asia, where trade has grown fast, poverty has been reduced very much more than in South Asia and Africa, which have remained more closed. East Asia has also benefited from high investment in education, but no one can seriously suggest there would have been less poverty if the region had been less open to trade.

On the contrary, throughout the world, such investments in education are themselves encouraged by the desire to attract multinational investment. One of the myths resounding through Seattle was that multinationals fly to where labour is cheap and governments weak. This is demonstrably false: the world’s cheapest labour and weakest governments are in sub-Saharan Africa, where multinational investment is negligible. Multinationals fly instead to where labour is most productive given its cost, and the evidence is unambiguous, everywhere from Ireland to Malaysia, that government spending on education and training attracts such firms rather than driving them away. They don’t come out of altruism, of course, but the education and training their presence encourages turn out to be the best assurance that economic growth will have a beneficial impact on the poor.

Just as it is troubling to those who romanticise the world struggle between labour and capital to realise that the interests of workers in America may conflict with those of workers in Africa, it comes as a surprise to many to realise that the most effective check on the power of one unaccountable corporation is often another corporation, and barriers to trade have been the saving of many a beleaguered cartel. Both globalisation and corporate accountability raise big and difficult issues, but simplistic analyses will not resolve them. Bill Clinton’s cynical sabotaging of the WTO talks will have cost the world’s poor far more than any benefit they will derive from his vapid scheme for debt cancellation.

Paul Seabright
Cambridge University

Michael Byers says that the negotiations towards a Multilateral Agreement on Investment ‘quickly attracted the attention of non-governmental organisations … in part because the OECD decided to be very open about the negotiations – going so far as to post various drafts on the Internet’. He is too generous to the OECD. The negotiations were conducted in secret from their beginning in 1995 until January 1997, when a draft was leaked to a Canadian NGO. Bootleg copies were then distributed via the Internet, starting an international campaign and forcing the OECD to post its official version on its website.